Private Equity & Venture Capital in GIFT City

Last Updated on: 11th April 2025, 06:11 pm

Introduction

India’s financial services landscape is undergoing a silent revolution — and at its heart lies GIFT City (Gujarat International Finance Tec-City), the country’s first International Financial Services Centre (IFSC). Strategically positioned between Ahmedabad and Gandhinagar, GIFT City is emerging as a new-age offshore hub for global financial institutions, fintech firms, and increasingly, private equity (PE) and venture capital (VC) funds.

GIFT City was conceived to onshore global financial flows that previously bypassed India in favor of Singapore, Dubai, or Luxembourg. With the establishment of the International Financial Services Centres Authority (IFSCA) in 2020, a unified regulator for all financial entities in GIFT IFSC, the ecosystem saw a wave of regulatory clarity, ease of doing business, and fiscal incentives — making it especially attractive for alternative investment managers.

In recent years, the interest in private equity in GIFT City and venture capital in IFSC has surged. As of end-2024, 139 Fund Management Entities (FMEs) have registered in the IFSC, raising over USD 14.88 billion in total commitments across various schemes. The appeal? A combination of 10-year tax holiday under Section 80LA, dealing in specified foreign currency, and the ability to access global LPs and institutional capital.

Crucially, this growth aligns with the Indian government’s strategic push to reverse externalization or “flipping” — the trend of Indian startups relocating to foreign jurisdictions like Delaware or Singapore for tax and valuation advantages. The IFSCA’s policy and tax reforms aim to position GIFT IFSC as a credible alternative, enabling Indian startups to raise foreign capital while remaining domiciled in India.

In short, GIFT City is no longer a vision — it’s fast becoming a global gateway for Indian innovation, capital, and investment opportunities, especially in the private equity and venture capital space.

Why GIFT City is Attractive for Private Equity & Venture Capital

As global investors look for efficient fund domiciles, GIFT City’s IFSC is fast gaining prominence as a preferred destination for private equity (PE) and venture capital (VC) funds. Backed by a progressive regulatory framework, generous tax benefits, and world-class infrastructure, the benefits of GIFT City for investors are hard to ignore.

Tax & Regulatory Advantages

GIFT City offers one of the most investor-friendly tax environments in Asia:

• 100% income tax exemption for PE/VC fund managers and entities for any 10 consecutive years out of 15, under Section 80LA of the Income Tax Act
• Zero capital gains tax on transfer of specified securities for non resident investors subject to certain conditions in case of investment in a Category III AIF
• Exemption from key levies:
  • GST on financial services
  • Securities Transaction Tax (STT)
  • Commodity Transaction Tax (CTT)

These incentives significantly enhance fund returns and reduce the cost of doing business, especially compared to traditional offshore jurisdictions.

Ease of Fund Formation & Operations

GIFT City is governed by the International Financial Services Centres Authority (IFSCA) — a unified regulator that simplifies operations through streamlined processes.

• Single-window clearance for fund managers and entities via the IFSCA Single Window IT (SWIT) portal
• Introduction of a Common Application Form (CAF) that merges multiple regulatory filings into one, reducing a lot of to and fro.
• Fast-track fund setup timelines and a pro-business approach compared to jurisdictions like Singapore, Dubai or Luxembourg

These steps reduce compliance costs and setup complexity, helping VC and PE firms focus on investing.

Currency & Investment Flexibility

Another game-changer for global fund managers is unrestricted currency movement:

• Free repatriation of capital and profits for non-resident investors
• Transactions allowed in freely convertible foreign currencies, including USD, EUR, GBP, SGD
• Funds in GIFT IFSC are treated as non-residents under FEMA, enabling seamless global investing and structuring

This flexibility makes GIFT IFSC a robust gateway for cross-border investments into and from India.

GIFT City vs. Singapore vs. Luxembourg: PE/VC Fund Comparison

Parameter	GIFT City (India)	Singapore	Luxembourg
Tax on Capital Gains	Exempt for non resident investors subject to certain conditions	Limited Exemption	Varies
Tax Holiday on management fees for Fund Manager	10 years (Sec 80LA)	Varies	Varies
Currency Flexibility	Full	Full	Full
Regulatory Ease	Single-window (IFSCA)	Moderate	Moderate
Setup Time	4–6 weeks	8–10 weeks	8–12 weeks

This table clearly shows why GIFT City is quickly emerging as a top choice for fund managers seeking cost-efficient, regulation-light, and tax-optimized fund domiciles.

Fund Formation in GIFT City: Key Structures

Setting up a private equity or venture capital fund in GIFT City has become a streamlined, investor-friendly process. With the IFSCA (Fund Management) Regulations, 2022, the fund ecosystem in the IFSC now rivals global financial hubs in both agility and compliance transparency.

Eligible Structures

If you’re exploring how to set up a PE/VC fund in GIFT City, here are the core options available:

• Authorised Fund Management Entity (FME):
  The FME is the central vehicle through which PE/VC fund activities are carried out. It must be registered with IFSCA and meet eligibility criteria related to experience, capital adequacy, and governance.
• Registered FME non-retail:
  Registered FME non-retail can launch various fund types under IFSCA, including:
  • Open-ended or close-ended funds
  • Hedge funds
  • Venture capital (VC) funds
  • Alternative Investment Funds (AIFs) — across Category I, II, and III

This flexibility allows fund managers to structure vehicles best suited to their investment strategy.

Steps to Launch a PE/VC Fund in GIFT City

Here’s a simplified roadmap for launching your fund in GIFT IFSC:

1. Incorporate a Legal Entity in the GIFT SEZ (typically as a Company or LLP)
2. Register with IFSCA as a Fund Management Entity (FME) under the FME regulations
3. Launch your fund scheme via a detailed Private Placement Memorandum (PPM)
4. Comply with IFSCA norms on:
   • KYC/AML requirements
   • Valuation methodology
   • Custody, administration, and risk management policies

Access to Global Capital

One of GIFT City’s standout features is unrestricted access to global investors:

• No FEMA Restrictions:
  Funds in GIFT IFSC are treated as non-resident entities, so non-resident investors can freely invest without additional RBI approvals.
• Indian AIFs Can Invest Freely:
  GIFT-based funds are excluded from the overseas investment limits imposed by RBI, making them a preferred destination for domestic institutional capital.

This open architecture allows GIFT-based funds to pool international and Indian capital seamlessly, giving managers the flexibility to scale globally while operating from India.

Opportunities for PE/VC Players in GIFT City

As India cements its place as a global innovation hub, GIFT City is rapidly emerging as the go-to destination for private equity and venture capital funds seeking long-term, tax-efficient, and globally integrated platforms. From enabling reverse flipping of offshore entities to channeling ESG capital, GIFT IFSC offers a range of investment opportunities that are reshaping fund strategies in 2025 and beyond.

Participation in Indian Startups: Global Access, Local Advantage

GIFT City provides a robust route for global capital to participate in Indian innovation, without the constraints of FEMA or domestic AIF limits.

• VC and PE funds based in GIFT IFSC can:
  • Invest in high-growth Indian startups with minimal regulatory friction
  • Retain foreign domicile benefits while operating in the Indian market
  • Offer global LPs easy exposure to India’s consumption-driven tech ecosystem

This makes GIFT IFSC an ideal platform to onshore Indian innovation, without compromising on global scalability.

ESG & Impact Investing: The New Frontier in GIFT IFSC

India is becoming a leader in climate tech, sustainable mobility, and inclusive finance — and GIFT City is matching this momentum with regulatory support for ESG and impact-focused funds.

• Green bonds, climate funds, and ESG-aligned VC structures are being increasingly registered at IFSC
• Funds benefit from:
  • Regulatory recognition
  • Favorable taxation
  • Access to global ESG investors and DFIs

This aligns with international capital mandates and opens doors for sustainable PE/VC investment opportunities in GIFT City.

Family Offices & Institutional Capital: Growing Momentum

High-net-worth individuals (HNIs) and ultra-HNIs are increasingly exploring the GIFT IFSC platform as a potential base for setting up family offices, attracted by tax incentives and the flexibility for cross-border structuring. While this use case is not yet widely operational, it represents a promising option for those looking to optimize wealth management in a globally connected environment.

Why it’s gaining interest:

• Wealth preservation and succession planning benefits
• Access to global financial products and strategies from within India
• Growing institutional interest, including pension funds, sovereign wealth funds, and university endowments tapping into Indian growth via GIFT-based platforms

This shift reflects the maturing of India’s financial ecosystem, with GIFT IFSC poised to become a central hub for capital pooling and allocation. For global investors focused on cost-efficiency, tax optimization, and scalable fund structures, the opportunities emerging from GIFT City in 2025 signal a transformative phase for fund management in India.

Infrastructural Limitations (Non-Core Amenities)

From a lifestyle and operational standpoint, non-core infrastructure within GIFT City is still developing. Challenges include:

• Limited availability of housing, restaurants, entertainment options, and international schools
• Inadequate public transport connectivity for professionals and visiting investors

These factors make it harder to attract top-tier fund managers and global talent to physically relocate or set up operations in the city.

Delay in IP Rights Protection & Fintech Startup Recognition

Strong intellectual property (IP) protection is critical for VCs investing in tech and innovation-driven startups. However, India still faces:

• Delays in patent and trademark registrations
• Limited recognition of software and business method patents
• Fintech startups seeking regulatory clarity often face inconsistent timelines for approvals and sandbox inclusion under IFSCA

These gaps hinder confidence among global VCs and institutional investors.

Key Legal & Regulatory Uncertainties

Several legal hurdles in IFSC continue to create uncertainty around fund structuring, taxation, and exits:

Stamp Duty Exemptions

• Stamp duty implications on security transfers and restructuring involving GIFT IFSC entities needs to be streamlined further
• Investors seek clear, centralized guidelines for tax-efficient transactions
  

Exit & Dispute Resolution Mechanisms

• Absence of a dedicated commercial or arbitration court within GIFT IFSC delays enforcement of shareholder rights
• Investors demand faster, enforceable exit strategies, especially during cross-border acquisitions or IPOs

Addressing these fund structuring issues in India is essential for scaling GIFT City into a global financial powerhouse. The groundwork is strong — but policy clarity, legal modernization, and perception correction will determine its long-term success.

Regulatory Landscape: What Fund Managers Must Know

As GIFT City cements its position as a global financial gateway, the International Financial Services Centres Authority (IFSCA) plays a pivotal role in defining a clear, agile, and globally competitive regulatory framework. For private equity and venture capital funds, understanding the evolving regulatory landscape in GIFT IFSC is essential to ensure compliance, secure licensing, and unlock the full spectrum of benefits available.

Overview of IFSCA (Fund Management) Regulations, 2022

The IFSCA (Fund Management) Regulations, 2022 are a game-changer for fund managers in India. These regulations consolidate and streamline fund formation and operations in the IFSC, creating a single, unified framework for:

• Fund Management Entities (FMEs)
• Schemes launched under PE, VC, hedge, or AIF formats
  

Key highlights include:

• Categorization of FMEs based on risk profile and investment strategy
• Modular licensing based on fund type and investor class (retail, accredited, or institutional)
• Explicit recognition for ESG funds and family offices structures
  

Reporting Norms, Audit Standards & AML/KYC Compliance

To maintain transparency and global credibility, GIFT City funds are expected to adhere to high compliance standards:

• Quarterly and annual reporting to IFSCA on fund performance, NAV, and investor activity
• Appointment of independent custodians, auditors, and fund administrators
• Robust KYC/AML policies aligned with FATF (Financial Action Task Force) norms
• Valuation norms for listed/unlisted securities and periodic disclosures to investors

These requirements enhance investor confidence and position GIFT IFSC as a credible global fund domicile.

Licensing & Fit-and-Proper Criteria

To register as an FME in GIFT IFSC, fund managers must meet IFSCA’s fit-and-proper criteria, including:

• Minimum capital requirement (for example: USD 5,005,000 for FME non-retail)
• Track record in fund management or financial services
• No history of regulatory breach or fraud
• Adequate governance framework, including independent directors for institutional schemes

The Common Application Form (CAF) simplifies the end-to-end licensing process, integrating entity registration, FME approval, and scheme launch into a single workflow.

Proposed Reforms to Watch: Unlocking Future Potential

The regulatory roadmap for GIFT City continues to evolve. Fund managers should track these upcoming reforms aimed at further liberalizing the ecosystem:

• Listing of Indian companies on IFSC stock exchanges, enabling access to global investors and deeper capital markets
• Establishment of special courts/arbitration centers for efficient dispute resolution in fund-related matters
• Participation exemption models to provide capital gains tax relief for holding companies moving to GIFT IFSC
• Clarification on stamp duty, and exit tax scenarios during reverse flipping or M&A activity

These reforms are expected to align GIFT IFSC with global fund jurisdictions like Singapore and Luxembourg, making it easier for managers to raise and deploy capital with regulatory certainty.

Future Outlook: PE/VC in GIFT City (2025–2030)

The next five years are set to be transformative for private equity and venture capital in GIFT City. With strong policy support, tax reforms, and rising global investor interest, GIFT IFSC is poised to become a core pillar of India’s financial globalization strategy. As the market matures, fund managers can expect increased efficiency, greater access to capital, and deeper integration with India’s digital economy.

Rise in PE/VC Fund Launches Post-Tax Rationalization

The Government’s focus on rationalizing tax regimes for GIFT-based fund structures—especially exemptions on capital gains, dividends, and angel tax—is already triggering a surge in fund registrations.

• As of end-2024, 139 Fund Management Entities (FMEs) have registered in GIFT IFSC, collectively raising over USD 14.88 billion in commitments from global and Indian LPs.
• New proposals such as participation exemption, carry-forward of flipping losses, and streamlining of stamp duty rates  is expected to boost the volume of fund launches between 2025–2030

This sets the stage for GIFT City to become India’s flagship offshore fund jurisdiction, rivaling Singapore and Dubai.

Emerging Focus Areas: Fintech, Deeptech, Aerospace & More

The next wave of GIFT City-based investments is expected to center around high-growth, high-impact sectors, including:

• Fintech & embedded finance platforms
• Deeptech (AI, quantum, semiconductors)
• Aerospace and defense-tech startups
• Digital infrastructure, including data centers and edge computing
• Climate tech and ESG-oriented funds
  

These segments align with national priorities and are attracting capital from global VCs, sovereign funds, and DFIs through GIFT-based fund structures.